Alistair Darling's forecast that the British economy will shrink by 3.5pc this
year has been contradicted by the world's leading economic watchdog.

Britain will this year suffer its worst recession in more than 60 years, the world's leading economic watchdog has warned, as the global economy sees its first year of negative growth since the end of World War Two.

The UK economy will shrink by 4.1pc in 2009, the International Monetary Fund forecast, with the downturn now expected to continue into next year, a year in which recovery had been expected, when the economy will fall by 0.4pc.

The forecast is somewhat worse than the 3.5pc contraction Alistair Darling estimated for 2009 in his Budget speech, and is even further at odds with his suggestion that the UK would grow by 1.25pc next year.

Unemployment in the UK – currently at 6.7pc – is expected to rise above 10pc later this year and continue rising until 2011, while national debt is expected to rise to 83pc of gross domestic product by 2014, higher than HM Treasury's latest forecasts of 79pc by 2013-14.

Instead. the picture the IMF paints of the near-term outlook for the UK economy is bleak, projecting Britain will suffer a "quite severe" recession as is hit "by the end of the boom in real estate and financial activity."

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However the rest of Europe will fare even worse than the UK, with both Germany and Italy's economy shrinking at a faster rate, and the forecast for the Eurozone as whole a contraction of 4.2pc for this year.

On a global scale, output, which had been forecast in January to grow by 0.5pc this year, will shrink by 1.3pc.

The depressing projections, detailed within the IMF's authoritative World Economic Outlook (WEO), suggests world leaders' attempts to revive the economy, through huge financial bail-outs, has not worked.

"The global economy is in a severe recession inflicted by a massive financial crisis and an acute loss of confidence," said the IMF's Olivier Blanchard and Jose Vinals in the closely-watched report.

The pair argue that while policy responses to date have "made some progress" in slowing the downturn, continued economic turnaround "depends on financial authorities acting decisively to restore financial stability."

On the UK, the WEO estimates that in 2008 alone, the loss in household wealth as a result of the recession was £1 trillion – £600bn from the reduction in house prices and £400bn from falling financial assets – the biggest decline of net wealth than any other country in the world.

The WEO asserts that the UK "will continue to suffer most heavily from credit constraints, given the direct damage to their financial institutions, major housing corrections, and reliance on household borrowing to support consumption."

The IMF forecast goes on to say that the "major correction" in the British housing market will "most likely have a considerable distance still to run".